Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: File No. S7-26-99
Dear Mr. Katz:
We appreciate the opportunity to provide comments on the Securities and Exchange Commission's proposed changes to the proxy rules to allow companies to household proxy and information statements. With over 4.5 million stockholders, Lucent applauds the efforts of the Commission to promote efficiency and cost savings for the benefit of corporations and their stockholders. We generally support the Commission's proposals, with a few suggested changes discussed below. We believe that the changes we suggest in the area of addressing of mailings are necessary before issuers would be able to take advantage of householding. In fact, without the changes we recommend to the group addressing requirements, we believe operational issues will result in issuers not being able to household annual reports when they have a stockholder's consent as they could prior to the recent amendments to Rule 14a-3(e).
Householding has the potential for significant cost savings. As the company with the largest stockholder body in the country, we have as great an interest in the householding proposals as any company, and we believe the difficulties we have with certain aspects of the proposals would encompass the problems that most companies might have. We agree with the objectives of the proposals -- our concerns are with the mechanics of the process. Because of the sheer magnitude of the undertaking and the need to automate the entire process -- in our case preparing and mailing over 4 million packages -- some requirements of the proposals are not feasible, and unless modified would prevent many companies from implementing householding. The changes we suggest should make householding available for all companies without doing harm to the objectives of the Commission and the protection of stockholders.
We believe that most instances where one household receives multiple proxy statements and annual reports involve some combination of the following:
In many of these cases, the investment and voting decisions for the various accounts are made by the same person. We have received many requests over the years from stockholders asking us to eliminate the duplicate mailings. In fact, this year over 350,000 of our 1.7 million record stockholders asked us not to send them annual reports because they were receiving more than one copy. We believe that most, if not all, of these stockholders would also want us to household proxy statements.
The following description of how our transfer agent prepares mailings is necessary background to understand how some aspects of your proposals may actually create disincentives for companies to household. We code a stockholder's account to suppress mailing of an annual report when the stockholder asks us not to send a duplicate annual report. When we mail proxy materials, our transfer agent mails several types of packages. One type contains a proxy statement, a proxy card and an annual report and is sent to stockholders who have not requested suppression of duplicate annual reports. Another type is for those stockholders whose accounts are coded to suppress mailing of the annual report. In all cases, the stockholder's name and address are printed on the proxy card and the card is placed in an envelope so that the name and address show through a window in the envelope.
If the Commission adopts the householding rules as proposed, we would probably continue to mail each stockholder's proxy card in a separate envelope and just omit the proxy statement and annual report from a householded stockholder's package. Lucent, like many issuers, is a Delaware corporation. We believe that in order to comply with the current Delaware notice of meeting requirements, we need to mail a proxy card (or some other document giving notice) to each registered stockholder. An intermediary mailing to those holding their shares through a bank, broker or other nominee would not have to comply with these rules and could mail all voting instruction cards for a household in one envelope.
Set forth below are specific comments on the proposed rules.
Addressing of Proxy Statement
Under proposed Rule 14a-3(e)(1)(i)(B), a company wishing to mail a proxy statement and/or annual report to a group of stockholders with the same address would have to address those materials either to the group or to each of the stockholders individually. We expect that companies will continue to produce proxy cards for each stockholder and that group addressing could be accomplished either by producing
a separate sheet of paper on which the group address was printed and placing that sheet in an envelope with a window so that the group address showed through the window, or
an additional label with the group address that could be placed on the outside of an envelope containing the proxy statement and/or annual report.
Each of these solutions may require transfer agents to implement costly programming changes and changes in the processes used to place proxy materials in envelopes, with the costs of these changes passed on to issuers.1 In addition, if the issuer includes a proxy card for a specific account, it is not clear that the Delaware notice requirements would be satisfied by group addressing.
Accordingly, we believe that companies should also be allowed to address the materials to any one of the individual stockholders, as they could with annual reports before the recent amendment of Rule 14a-3(e). This alternative would require much more modest and manageable programming and operational changes. Based on our understanding of why households have more than one account, we believe the Commission could adopt this change without any significant detriment to investor protection. We also believe that unless the Commission makes this change, many companies will conclude that they can no longer household annual reports as they could under Rule 14a-3(e) as in effect prior to the recent amendments, which permitted delivery of the annual report to any one of the stockholders at the shared address.
Delivery to a Post Office Box or a Residential Address
Rule 14a-3(e)(1)(ii)(D) as proposed also would require an issuer to mail the annual report to a post office box or a residential street address in order to rely on implied consent to householding. While the proposed rule states that issuers can assume that an address is a residence unless it has information that indicates it is a business, we do not believe there is a reliable way to tell where an address is a business short of manually examining each address, an expensive process. Further, we do not believe that an issuer should have to examine other accounts to see whether another account at that address has a business registration. Thus, we believe the requirement should be deleted.
Inclusion of a Unit Number
We believe the requirement to include a unit number if the registrant has reason to believe that the address is that of a multi-unit building should be deleted. We do not know what would constitute "reason to believe?" Must the issuer undertake some inquiry? We do not believe the Commission intended that issuers would have to look into whether addresses were multi-unit buildings. It would not be economically feasible for issuers to examine all addresses in their stockholder registers to determine whether a particular address was a multi-unit building and then go out and try to get a unit number if none was provided. We believe that an issuer's obligation should be limited to addressing the package to the complete address of record for the stockholder to whom it is mailing the annual report.
The Commission solicited comment on whether stockholders should be able to direct issuers how to address mailings. We do not believe this is necessary, and the cost of programming and other implementation is likely to be significant. Thus, we oppose such a requirement.
You have proposed that a company must have a stockholder's actual or implied consent before it can household documents to that stockholder. Implied consent would be obtained by mailing a notice to the stockholder indicating an intention to household and not receiving an objection within a specified period of time.
Separate Notice Requirement
The Commission should not require a separate mailing indicating an intention to household particularly in light of the availability of electronic and printed proxy statements and annual reports upon request. First, we envision negative stockholder reaction and annoyance at receiving yet another round of multiple mailings, this time for the purpose of reducing multiple mailings. Our experience indicates stockholder annoyance with multiple mailings. This would particularly be true where the multiple notice mailings would be multiplied by owning securities of a number of different issuers. Further, issuers would have to do new mailings each year in order to household accounts that had been created since the last mailing. The prior notice requirement also makes it impossible to household documents to accounts created after the mailing date.
If the Commission is unwilling to eliminate the prior notice requirement entirely, we propose that issuers have a choice of sending a prior notice or sending a proxy card with a statement of how paper or electronic copies of the proxy statement and annual report can be obtained. At a minimum, no separate notice should be required for accounts with the same taxpayer id number.
Although we urge the Commission to eliminate the proposed requirement for a separate notice, if nevertheless separate notice is required, we propose that some of the notice periods be changed. Under proposed Rule 14a-3(e)(1)(ii)(B), an issuer must send the notice indicating its intention to household at least 90 days before it begins mailing its proxy materials and can only household if it does not receive an objection by the expiration of the 90 days. Issuers need time before mailing to print proxy materials and mailing labels, assemble and enclose proxy materials and mail those documents. In order to fully realize the cost-savings of householding, issuers will need to know how many copies of the various materials they will need before they start printing. Because of the number of stockholders Lucent has, we begin printing our proxy materials over a month before we mail them. Thus, if you feel that a separate notice is required, we urge that companies be able to household if they do not receive an objection within 45 days after the notice is mailed. Similarly, we urge that the time period in which separate mailings must recommence after stockholders revoke their consent be extended from the proposed 30 days to 45 days.
Because most companies have more stockholders who hold their shares in "street name" than stockholders of record, for the householding rules to generate the intended savings, companies must have ways to require intermediaries that mail proxy materials to stockholders who hold their shares in street name to household at a reasonable cost to the issuers.
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Thank you for the opportunity to express our views on these issues. If you would like to discuss any of our comments, please feel free to call me at 908-582-7897 or Jon Gilbert at 908-582-8807.
Very truly yours,
Pamela F. Craven
Vice President - Law & Secretary
1 In our case, our transfer agent would have to develop a program to analyze every account's address, mark the accounts where proxy statements and annual reports would be suppressed and somehow indicate that an insert would have to be generated for the account that would continue to receive the proxy statement and annual report. After producing the sheet with the group address, the transfer agent would have to set up a process to match the sheets with the corresponding proxy cards and insert them in envelopes. This would require significant programming expense as well as costly additional machinery.